Mortgage Pre-Approval Basics | San Diego Real Estate

    Your house is most likely your most important investment. Because there is so much money involved, buying a house has a lot of moving parts. There are many steps involved and the failure to complete even one step can significantly delay the purchase of your home. One of these steps is getting pre-approved for your mortgage.

    Photo by 401(K) 2012
    Photo by 401(K) 2012

    What is Pre-Approval?

    A pre-approval is a written commitment from a lender stating that a specific borrower qualifies for a specific loan based on their current credit and income information. The majority of pre-approval letters are valid for 60 to 90 days.

    Why Get Pre-Approved?

    One of the most important reasons to get pre-approved early in the process of buying a home is that is gives you accurate information regarding the price you can afford to pay. This allows you to only spend your time looking at houses within your price range. If you do not have pre-approval and you are looking at properties that are in high demand, the offer you make will not be taken seriously. If another offer is made by someone with pre-approval, they will get the property. Also, a pre-approval letter is required from a lender in order to purchase most homes that are owned by banks.

    Required Pre-Approval Documents

    Self-employed people will need to show their year-to-date balance sheet, year-to-date profit and loss statement and business tax returns for the previous two years.

    • Divorcee decree, if applicable
    • Current mortgage documents or the name and phone number of your landlord (if you are renting)
    • The statements for all of your other assets (retirement accounts, bonds, stocks) for the previous two months
    • The statements for your savings or checking accounts for the previous three months
    • Tax returns for the previous two years
    • Paystubs for the previous three months
    • W2 for the previous two years

    What If I Can’t Get Pre-Approved?

    If you are not able to successfully secure a pre-approval letter from a lender, you will most likely be required to work on three areas of concern:

    • Increasing the amount of your down payment to allow you to qualify for a house in the price range that you want
    • Improving your debt-to-income ratio and lowering the amount of your overall debt
    • Raising your credit score and fixing any errors that exist on your credit report

    You should ask your lender to give you advice to help you have a better chance of successfully getting a loan. They want you to get pre-approved because it is good business for them. Being pre-approved can literally be the difference between being able to purchase the home of your dreams and being forced to stay where you are currently living. By doing some planning and getting your finances in order, your chances of getting pre-approved will go up dramatically.

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